LINCOLN, NE(NET Radio) -
Thirty-two million dollars. That's how much money state auditor Mike Foley says the state Department of Health and Human Services has spent on child welfare reform without proper documentation - or any at all. Foley presented a harsh report on the state's handling of the reform Wednesday at a packed room at the Capitol to the Legislature's Committee on Health and Human Services.

"I'm here to tell you that there is no agency of state government more highly skilled at obfuscation, or trying to frustrate the oversight and audit process, than is the Department of Health and Human Services," Foley said. "They are the masters. And they pulled out all the stops in an effort to frustrate and defeat this audit. And I'm sorry to have to tell you that, but that's what happened with this audit."

From the very beginning of the privatization process, Foley said, there has been an "extraordinary" lack of documentation on how funds were determined upon and how they were spent. He specifically cited the initial $7 million in contracts for the original six private contractors, as well as $25 million in recent additions to the two remaining lead agencies' contracts.

"Either they're deliberately violating the law, or it's true they spent $25 million, and nobody has any notes, no documentation," he said. "It's extraordinary, we've never seen anything quite like this."

Foley and his team of auditors found that costs for HHS' child welfare privatization process, known as "Families Matter," increased 27 percent over the last two years, from $107.7 million in 2009 to $136.5 million currently, and growing.

Some of the most eyebrow-raising parts of the report included claims of massive overpayments to lead contractors. Agency Visinet terminated its contract in spring of 2010, citing inadequate funding. Though the company initially filed for bankruptcy, Foley said its claim was thrown out by the courts.

"By the time it was all said and done, we believe that HHS overpaid Visinet $3.9 million dollars."

Instead of going under, the auditor said, the company was actually paid by the state for 76 extra days, during which no services were rendered.

In a limited sample analysis of HHS payments, the audit found $25,000 in duplicate payments, while another $128,000 went to the wrong contractor. Foley said when that limited sample is extrapolated to total Families Matter expenditures, it would amount to about a million dollars in inappropriate or inaccurate payments.

The auditor also found several sub-contractors grossly abusing their contracts, including several for-profit corporations in central Nebraska.

"We have found that they are hiring un-credentialed workers," he said. "These are people that they hired from Taco Bell and Wal-Mart. They're paying them $10 to $12 an hour, and then they're billing the state of Nebraska $47 an hour."

HHS promptly issued a press release disputing many of the auditor's key statements. NET News spoke with HHS CEO Kerry Winterer later in the day, and several times he made a point of saying that while the department recognizes and respects the role of the auditor's office, Foley simply got it wrong - especially where he criticized the department for supposedly hindering the investigation by refusing to turn over documents.

"We would just simply dispute that," Winterer said. "We spent lots of time and effort trying to accommodate his requests and produce what documents and responses we had."

Instead of a refusal to hand over information, Winterer said, the problem was that Foley's expectations for documentation were too high. Asked about the auditor saying emails and requests went unanswered for weeks at a time, Winterer said the department is diligent about responding to legislators and other officials.

But Winterer said the department agrees with much of the report, and has already begun to implement some of its recommendations. For example, he mentioned the appointment two months ago of Vicki Maca as administrator for the two remaining private contractors. But when asked for specifics about how she is implementing additional monitoring, Winterer was short on details.

Nevertheless, Winterer stressed it's not an "us vs. them" scenario.

"I don't want people to fashion this as a fight with the auditor," Winterer said. "Much of the report is good information for us, and we expect to take that and, to the extent that we can, we will make changes in our own internal practice and processes that respond to that."

And he said that despite all the talk about numbers and dollars, the "end game" is the impact reform is having on the kids. If their lives are better, Winterer argued, then that's what really matters.

But Auditor Foley would likely argue the effect of reform on children is inextricably bound to those numbers and dollars. Or, as Senator Bob Krist of Omaha put it during Wednesday's hearing:

"I've always been taught that if you follow the money train, you can usually find out where your successes and failures are and not one person who has sat in that chair from HHS has been able to give us any kind of recollection of where the money has gone," he said. "Your audit is testimony that there are serious problems within HHS."